Major Drilling Group International Inc. (MDI:CA) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reveals several negative factors: decreased margins, increased costs, and a decline in net earnings. The Q&A highlights uncertainties in North America and lack of clarity on growth potential. Despite some growth prospects in South America, the lack of positive guidance and weak performance in the U.S. contribute to a negative sentiment. Additionally, the management's evasive responses to critical questions further undermine confidence.
Key Financial Performance
Revenue $226.6 million, up 20.8% from the prior quarter and 19.3% from $190 million over the same period last year. Growth driven by strength in South and Central America, particularly Peru, partially offset by Australasia due to unexpected modifications to drill programs.
Adjusted Gross Margin Percentage 25.2% for the quarter compared to 28.9% from the same period last year. Decrease due to competitive environment in North America and mobilization costs for new projects.
G&A Costs Increased by $3.2 million compared to the same quarter last year due to the addition of Explomin and annual inflationary wage adjustments.
EBITDA $32.1 million compared to $34.3 million in the prior year period. Decrease attributed to factors like competitive environment and mobilization costs.
Net Earnings $10.1 million or $0.12 per share compared to $15.9 million or $0.19 per share for the prior year period. Decline due to lower margins and increased costs.
Net Debt $2.8 million, with working capital growing by $13.1 million to $206.8 million, driven by increased receivables from ramp-up in activity levels.
CapEx Spending $14.4 million, lower than expected due to strategic relocation of drill rigs and prior investments in the fleet.
Fleet Utilization 50% overall utilization with 709 total drills. Specialized drills at 46%, conventional drills at 50%, and underground drills at 54% utilization.
Revenue Composition by Drilling Type Specialized work accounted for 60% of total revenue, conventional drilling 14%, and underground drilling 26%. Growth in underground drilling aided by Explomin acquisition.
Revenue Composition by Commodities Gold represented 41% of revenue, copper 34%, and iron ore 11%. Growth driven by high gold prices and strength in South and Central America.
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Operating Highlights
New drill rigs and support equipment: Added 5 new drill rigs and support equipment while disposing of 4 older rigs, bringing the total rig count to 709.
Geographic performance: Strong growth in South and Central America, particularly Peru and Chile, offset by softness in Australasia and challenges in North America due to forest fires and permitting delays.
Commodity revenue: Gold accounted for 41% of revenue, copper 34%, and iron ore 11%, showcasing diversity in commodities.
Revenue growth: Achieved 21% revenue growth over the last 3 months, with Q1 revenue at $226.6 million, up 20.8% from the prior quarter.
Fleet utilization: Overall fleet utilization at 50%, with specialized drills at 46%, conventional drills at 50%, and underground drills at 54%.
Operational leverage: Positioned to unlock operational leverage due to prior investments in infrastructure and equipment, with no significant incremental CapEx needed.
Explomin acquisition impact: Peru's revenue run rate increased following the Explomin acquisition, contributing to long-term contracts and stable revenue streams.
Strategic relocation: Drill rigs were strategically relocated to regions with higher demand, improving utilization and efficiency.
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Risk or Challenges
Delayed Mobilizations: The company experienced a slower start to the calendar year due to delayed mobilizations, which could impact revenue and operational efficiency.
Australasian Market Softness: Temporary softness in the Australasian market caused by changing exploration plans led to reduced activity levels, potentially affecting revenue from this region.
North American Market Challenges: The North American market faced forest fires, permitting delays, and elevated competition, which impacted activity levels and margins.
Foreign Exchange Impact: Unfavorable foreign exchange translation impacted revenue by approximately $1 million, though the effect on net earnings was minimal.
Decreased Margins: Gross margins decreased from 28.9% to 25.2% due to competitive pressures in North America and mobilization costs for new projects.
Inflationary Pressures: General and administrative costs increased due to inflationary wage adjustments, adding to operational expenses.
Junior Financing Constraints: Junior financings remain below prior cycle levels, limiting revenue growth opportunities from this segment.
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Guidance & Outlook
Revenue Growth: The company expects top-line momentum in Q2, driven by additional projects, particularly in the South American region. Peru's revenue run rate is anticipated to continue growing due to the acquisition of Explomin and the addition of long-term contracts.
Regional Outlook: Optimism for North America is noted as the junior financing market shows signs of recovery, and streamlined permitting processes in Canada and the U.S. are expected to increase activity. South America, particularly Peru, is expected to see stable and diversified revenue growth.
Commodity Trends: Gold prices have reached record highs, and the outlook for copper and other base metals remains strong. Elevated commodity prices are expected to support further growth in exploration budgets as mining companies address reserve depletion.
Capital Expenditures: No significant incremental capital expenditures are anticipated due to prior investments in infrastructure and equipment, allowing the company to leverage operational efficiencies as demand grows.
Operational Leverage: The company is positioned to unlock operational leverage as activity scales up, supported by a well-maintained fleet, solid inventory levels, and strong safety and performance metrics.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:Can you talk about the dynamics you are seeing in North America, particularly regarding the pipeline in Canada versus the United States and the streamlined permitting process in both regions?
A:In Canada, there has been a pickup in activity, particularly driven by juniors, but they are not yet in full force. The U.S. has not seen a similar uptick. Regarding permitting, there has been no significant impact on drilling yet, and the process is still slower than expected in both Canada and the U.S. Other regions globally are seeing more activity.
Q:With the outlook pointing towards continued top-line growth driven by South America, can you discuss the stronger regions you foresee in the future and the dynamics driving that growth?
A:Peru is expected to grow significantly in the next quarter, with increased mobilization and onboarding costs. Canada is also expected to see continued growth, while the U.S. remains uncertain. Future growth will depend on mining companies' budget allocations.
Q:CapEx was about $14 million for the quarter. Can you discuss the dynamics leading to the lower-than-expected CapEx and whether it will remain in the $60 million to $70 million range annually?
A:The lower CapEx was due to moving rigs from other operations to Peru, which increased utilization rates to 50%. The company does not foresee needing more CapEx than previously guided, but this depends on regional demand and the type of demand.
Q:Are you seeing any opportunities in niche mining areas like rare earths, tin, tungsten, and antimony that could move the needle for your business?
A:Individually, these areas are not major contributors, but collectively they can have an impact. The company is involved in tin drilling in Peru and sees potential in lithium, nickel, and uranium. However, 70%-80% of activity will still come from gold and copper.
Q:Are you actively engaging in or being approached for security discussions regarding critical minerals and their importance to NATO and the West?
A:The company is not directly involved but is participating in discussions with ministers to emphasize the need for a conducive business environment in Canada. Other countries are acting faster, but the conversations in Canada are moving in the right direction.
Q:Do you expect less of a slowdown in the third fiscal quarter compared to historical trends, given the current momentum?
A:It is too early to tell. Decisions about continuing operations are typically made in October or November. The current environment with rising commodity prices is positive, but it is uncertain if this will lead to less of a slowdown.
Q:Was the U.S. revenue down 20% in the quarter, and is that accurate?
A:Yes, U.S. revenue was down 20%, primarily due to a slowdown among junior customers. In contrast, Canada saw a 20% increase in revenue compared to last year.
Q:Will you be presenting at the Beaver Creek conference?
A:No, the company will not be presenting at Beaver Creek as it is only for mining companies.
Q:Review of Unclear Management Responses
A:Management avoided giving a direct answer regarding the potential for less of a slowdown in the third fiscal quarter, stating it was too early to tell and decisions would be made later in the year. Additionally, while they acknowledged the slow permitting process in North America, they did not provide specific details or timelines for improvement.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
America confidence
America mobilization
Australasia modification
CEO CFO
CEO Non
CEO President
Chile Peru
Conference meeting
Conventional drilling
Director today
Drilling
Explomin
Independent Director
Larocque President
Non Independent
President CEO
South region
activity level
capital
commodity
contribution
drill rig
drill utilization
exploration
fleet
junior
level demand
period
presentation
program
project
standard
strength South
utilization drill
work
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The earnings call reveals several negative factors: decreased margins, increased costs, and a decline in net earnings. The Q&A highlights uncertainties in North America and lack of clarity on growth potential. Despite some growth prospects in South America, the lack of positive guidance and weak performance in the U.S. contribute to a negative sentiment. Additionally, the management's evasive responses to critical questions further undermine confidence.
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